Banks Bow to New York on Clawbacks

Three more top banks, including
Citigroup
Inc.,
will broaden their clawback policies to cover more executives, increase disclosures or add potential triggers.

The moves increase to six the number of leading financial companies that have bowed to pressure from the New York City's Comptroller's Office.

Comptroller
John C. Liu
also appears to have broken new ground, with
Capital One Financial
Corp.
agreeing to make public the total dollar amount of pay it claws back.

ENLARGE

Capital One will become the first bank to make public the amount of pay it claws back from executives.
Agence France-Presse/Getty Images

The sixth-largest U.S. bank will disclose how much it recouped from errant workers, so long as the event that triggered the collection has been publicly disclosed in regulatory filings, a spokesman for Mr. Liu said. It is believed to be the first company to agree to disclose clawback dollar amounts.

The agreements, which Mr. Liu's office plans to announce on Thursday, come after four months of negotiations. As comptroller, Mr. Liu oversees New York City's pension funds, which are major shareholders of the banks.

In addition to Capital One and Citigroup,
Wells Fargo
& Co. also agreed to broaden clawback policies to cover misconduct that causes financial or reputational harm, although the Citi and Wells changes are less expansive than Capital One's, the spokesman said.

Clawbacks have taken on added scrutiny nearly a year since J.P. Morgan took a $6.2 billion trading hit in what has become known as the "London whale" blunder.

J.P. Morgan clawed back two years of total annual compensation, including restricted stock, and canceled options grants, from three London-based managers who had direct responsibility for the trading portfolio at the heart of the losses.
Ina Drew,
the executive who ran the Chief Investment Office where the losses occurred, volunteered to return her pay to the maximum amount allowed by the bank.

The bank also has recouped other employee pay but hasn't disclosed details or the dollar amounts for any clawbacks.

Before the "London whale" there weren't many known cases of clawbacks in the financial sector. The Dodd-Frank financial law broadened the rules instituted in the 2002 Sarbanes-Oxley Act, which gave companies the power to recoup pay from top executives after a financial restatement or certain misconduct.

That followed a trading scandal that cost $2.3 billion and pushed UBS to a $1.3 billion loss for 2011.

New York City's pensions hold 1.6 million shares of Capital One, 7.4 million shares of Citi and 11.7 million shares of Wells Fargo, worth $87.4 million, $347.5 million and $430 million, respectively, as of Wednesday's market close.

"The new policies will give boards the power to hold executives financially accountable for costly misconduct, including misconduct by those they supervise," Mr. Liu said in a statement.

Spokesmen for Capital One and Citi declined to comment.

A Wells Fargo spokeswoman said the comptroller's proposal was "consistent with our thinking on the subject, and we appreciate the productive dialogue we had with our shareholder."

Mr. Liu's office has been pressing banks to disclose when and how much they claw back. Capital One is believed to be the first company to specifically agree to do so, he said. Citi and Wells Fargo agreed to consider disclosure on a case-by-case basis.

Capital One's previous clawback provisions covered only its top executive officers and triggered only in the event of a financial restatement or willful misconduct. Its new policy covers conduct of the firm's 12 executive officers and holds them accountable for events that occur under their chain of command.

Citi's revised clawback policy recoups pay where executives are responsible for material financial or reputational harm, either through their own actions or in failing to supervise others.

Wells Fargo's revised policy takes back unpaid compensation awards in the event of misconduct, material error, failure to supervise or in the event the company or an individual executive's business group has a material downturn in financial performance or failure of risk management.

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